What IT Companies Learned from the Last Recession

WEBINAR:On-Demand

The conditions that tempted vendors to bypass their channel partners in the 2001 recession are no longer in place.

With IT vendors struggling to make their numbers and laying off workers in
droves, how long will they be able to resist the temptation to take channel
business direct in attempts to control costs?

In the economic recession of 2001, the answer was clear as some vendors with
strong channel histories, particularly Hewlett-Packard, were adamant about
taking at least some of their business direct.

Back then, the debate over direct versus channel sales still raged, mostly
fueled by Dell, which held out on launching a formal channel program until the
fall of 2007. The vendor had held fast to its direct strategy since its
founding, but changed direction after a string of underperforming quarters and
customer service issues.

Dell’s change of heart is one market condition that has changed since 2001,
but there are others. And those changes, according to some deeply entrenched
channel veterans, make it unlikely that vendors during the current recession
will try very hard to bypass or cannibalize their channel partnerships.

Keith Bradley, North America president for
distributor Ingram Micro, says a unique set of circumstances was at play in
2001: The IT channel was reeling from the downward curve in demand that
followed the dot-com and Y2K phenomena. By then, Y2K was becoming a memory and
the brunt of dot-com companies once hailed as the future of the industry had
gone down in flames.

In the current economic crisis, Bradley notes, those conditions are absent.

Another change, he says, is that while in 2001 a lot of big vendors still
thought that going direct allowed them to control their selling, general and
administrative (SG&A) expenses, today the debate over direct versus
indirect sales is over.

Distributors and solution providers have proven beyond a shadow of a doubt that,
for the brunt of IT products and services vendors, partnering with the channel
is a more cost-effective way to move products, especially for vendors selling
into the small and midsize business market. Rather than build sales and
marketing infrastructures for the impossible task of reaching SMB customers, no
matter how small, vendors for the most part realize that tapping the already established
channel infrastructure makes more economic sense.

"In the end, I don’t see how vendors could make more money by circumventing
the channel," says Joe Quaglia, senior vice president of U.S.
marketing at distributor Tech Data. "Speed, efficiency and cost are the primary
concerns when it comes to delivering solutions to the market, and vendors
recognize the best mechanism to do that is through distribution and their
channel partners."

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